AirAsia India’s internal battles dent performance

K Giriprakash Bengaluru | Updated on January 16, 2018 Published on October 31, 2016


Airline continues to remain unprofitable, but was able to pare losses to ₹20.36 crore

Low-cost airline AirAsia India has been in the news for all the wrong reasons since its launch over two years ago.

The latest revelation by the airline that an investigation was being carried out against former executives which confirmed former Tata Sons’ Chairman Cyrus Mistry’s statement in an e-mail to the board that a probe had revealed fraudulent transactions worth ₹22 crore, clearly shows that the airline was busy fighting internal battles which reflected on its overall performance.

Source inside the airline told BusinessLine that the ongoing probe did not prevent the board from giving its then CEO Mittu Chandilya additional charge.

In August last year, the airline board not only gave him the additional post of managing director but also inducted him into the board.

This, however, did not prevent Chandilya from quitting the post during February this year.

The investigation was carried out for nearly six months.

Background to the venture

The probe related to allegedly buying furniture for personal use, hiring drivers for personal use of the car and for frequent overseas travel all at the airline’s expense.

In his e-mail to the board, Mistry claims that though he could not prevent the Tatas from partnering AirAsia Group to float AirAsia (India), he was able to extract a promise of not raising stake in the venture.

Giving a background to how the Tatas got into the airline venture, Mistry said the foray into the aviation sector began when Ratan Tata ushered him into his office and handed him a report on AirAsia by Bain & Co.

He had concluded negotiations to partner with AirAsia and wanted the proposal tabled at the forthcoming Tata Sons board meeting.

“My push-back was hard but futile. However, I was able to extract a promise of no debt to be raised at the level of the JV as well as limiting Tata Sons investment to 30 per cent of the $30-million equity.”

Increase stake

However, Tata Sons increased its stake initially from 30 per cent to 41 per cent buying half of another partner, Arun Bhatia’s (Telstra TradePlace) stake.

It went on to increase its stake further to 49 per cent after it bought the remaining stake from Bhatia. AirAsia India’s Chairman S Ramadorai as well as board director R Venkataramanan also pitched in by buying 2 per cent stake in the airline.

AirAsia Berhad owns 49 per cent stake at present. Since its inception, the airline has struggled to remain solvent even though Chandilya continued to make claims that it would turn around within three months of its operations.

It continues to remain unprofitable though for the first time it has been able to reduce losses during the April-June, 2016 quarter to ₹20.36 crore compared with ₹44 crore during the same period previous year. Its revenues, however, have grown 73 per cent to ₹189 crore.

The foray into the airline sector did not stop at floating AirAsia India. The Tatas went on to float another airline venture Vistara picking up 51 per cent in a $100-million joint venture with Singapore Airlines, which Mistry termed it as a fait accompli.

Published on October 31, 2016

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